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Argentine renewables advance again with private PPA plant

IN DEPTH | The first deal under rules enabling supply under private PPAs marks another step forward for Argentina's rapidly-evolving renewable power market, writes Alexandre Spatuzza

Less than a month after the Argentine government finalised the rules for the non-regulated market, power trading firm Saesa signed the first contract to build a 5MW PV plant to supply clean electricity via private PPAs to industries opting not to purchase from the grid.

“Signing these contracts makes it clear that we entered a new auspicious phase [for renewables] in Argentina,” said Juan Bosch, CEO of Saesa.

Under the deal, estimated to be worth more than $5m, the solar project will be built by local developer 360 Energy and should in a “few months” be selling power to the metal and food industries, as well as logistics and telecoms firms and other services provider.

The non-regulated market regulations almost close the circle on the implementation of Argentina’s 10GW renewable energy programme, which started in 2015 with the approval of the country’s renewable energy law. The country's Congress now needs to finalise approval of a law for generation distribution – the icing on the cake of a programme that is attracting investors from all over the world.

“Argentina’s energy policymakers are doing a fantastic job and they are doing all this according to strict orthodoxy,” Rámon Fiestas, Latin America director at the Global Wind Energy Council (GWEC) told Recharge. “And the market between private entities should be bigger [than the regulated market] because this is the natural way that renewables should be traded.”

Driving the renewables market, and more specifically the non-regulated market, is a legal requirement for all consumers to guarantee that 20% of their supply is from renewables by 2025, starting at 8% in 2018.

To meet this goal, consumers have three options.

They can buy power from the government’s grid operator and power regulator Cammesa, which is holding the RenavAr public tenders to increase the amount of renewables available on the grid. This is the only solution for residential and small consumers up to annual demand equivalent to 300kW.

The so-called large or qualified consumers, with demand above that, have two options: building their own projects for self-supply or signing contracts directly with generators.

If they fall short of the targets, consumers will have to pay penalties equivalent to the difference between their effective renewable power supply and non-renewable usage at prices equivalent to fossil fuel power generation costs, which easily top $100/MWh.

So far, state oil company YPF and aluminium smelter Aluar are already investing in their own wind projects to meet their target, while Saesa has taken the lead for in the private PPA market.

The potential is huge. From today’s level of almost zero, the government estimates that if all the qualified users migrated to the non-regulated market to meet the 20% target, the capacity needed would be around 2.6GW.

Argentina’s non-hydro renewables account currently for about 2% of total power supply, and the country relies on fossil fuel-based generation – mostly imported gas from Chile and Bolivia – for around 68% of its power.

“There are 8,000 companies that are qualified consumers [and can opt to buy power in the non-regulated market]. The industrial and commercial sector accounts for 25% of all demand, but I don’t expect them all to rush to regulated market, and not all will buy 100% of their power directly from renewables generators, it will take time,” Sebastián Kind, the sub-secretary for renewable energy at the ministry told Recharge.

Although as expected the non-regulated market rules are pretty liberal, there are limitations, such as having to communicate the decision to leave the grid and not return to buying from Cammesa’s market before five years. But even then, the market is attractive.

“It’s an opportunity for companies to seek cheaper power and to become knowledgeable about the renewable power industry,” said Cecilia Giralt, renewable energy economic and technical studies director at the energy ministry.

According to Giralt, new business models will arise, like the expansion of existing regulated market facilities. “Generators will have to be creative to attract the large users,” she concluded.

For Juan Pablo Saltre, CEO of Uruguayan renewable energy consultancy and construction company Ventus, which operates in Argentina, the prices at the regulated market could be as much as 15% cheaper.

“If you want prices below $60, it has to be in the non-regulated market,” says Saltre, who is also in talks with large industries for the construction of self-supply projects.

For generators, the non-regulated market is also a way to avoid the risk of having to receive payments from Cammesa, said to delay paying out at times of financial stress.

Saesa’s Bosch, however, estimates prices in the non-regulated market to be higher, at just over $70/MWh, but similar to renewable energy prices in the regulated market if you add surcharges and trading costs.

Argentina is taking giant leap into renewables with RenovAr revolution

But still he sees prices for renewable energy below prices that companies currently pay for power, which range from $80/MWh to over $110/MWh.

“We are holding very productive talks and in two years we’ll have 80MW for this market,” says Bosch.

Although several technologies qualify for the non-regulated market, including small hydro, biomass and biogas, market players believe that solar and wind will take the bulk of the contracts. Solar should lead because of better grid connections, the technology’s faster build-out time and the greater diversity in location in the country’s northern Andean foothill regions, they forecast.

“It will be a close call, but in the end I expect solar to account for 30-40% for the non-regulated market projects and wind for the rest,” said Bosch.

However, with private PPAs under 10 years representing one of the challenges for this market – which should easily top 1GW the next three to four years according to Bosch – is financing. With Argentina facing a challenge to overcome the bad reputation from its sovereign default in the early 2000s, the options are limited.

That means doors are still shut for project financing. So companies have resorted to corporate financing, and even to multilateral institutions such as the World Bank, the Inter American Development Bank (IADB) and the Latin American Development Bank (CAF).

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Argentine renewables advance again with private PPA plant

IN DEPTH | The first deal under rules enabling supply under private PPAs marks another step forward for Argentina's rapidly-evolving renewable power market, writes Alexandre Spatuzza

Less than a month after the Argentine government finalised the rules for the non-regulated market, power trading firm Saesa signed the first contract to build a 5MW PV plant to supply clean electricity via private PPAs to industries opting not to purchase from the grid.

“Signing these contracts makes it clear that we entered a new auspicious phase [for renewables] in Argentina,” said Juan Bosch, CEO of Saesa.

Under the deal, estimated to be worth more than $5m, the solar project will be built by local developer 360 Energy and should in a “few months” be selling power to the metal and food industries, as well as logistics and telecoms firms and other services provider.

The non-regulated market regulations almost close the circle on the implementation of Argentina’s 10GW renewable energy programme, which started in 2015 with the approval of the country’s renewable energy law. The country's Congress now needs to finalise approval of a law for generation distribution – the icing on the cake of a programme that is attracting investors from all over the world.

“Argentina’s energy policymakers are doing a fantastic job and they are doing all this according to strict orthodoxy,” Rámon Fiestas, Latin America director at the Global Wind Energy Council (GWEC) told Recharge. “And the market between private entities should be bigger [than the regulated market] because this is the natural way that renewables should be traded.”

Driving the renewables market, and more specifically the non-regulated market, is a legal requirement for all consumers to guarantee that 20% of their supply is from renewables by 2025, starting at 8% in 2018.

To meet this goal, consumers have three options.

They can buy power from the government’s grid operator and power regulator Cammesa, which is holding the RenavAr public tenders to increase the amount of renewables available on the grid. This is the only solution for residential and small consumers up to annual demand equivalent to 300kW.

The so-called large or qualified consumers, with demand above that, have two options: building their own projects for self-supply or signing contracts directly with generators.

If they fall short of the targets, consumers will have to pay penalties equivalent to the difference between their effective renewable power supply and non-renewable usage at prices equivalent to fossil fuel power generation costs, which easily top $100/MWh.

So far, state oil company YPF and aluminium smelter Aluar are already investing in their own wind projects to meet their target, while Saesa has taken the lead for in the private PPA market.

The potential is huge. From today’s level of almost zero, the government estimates that if all the qualified users migrated to the non-regulated market to meet the 20% target, the capacity needed would be around 2.6GW.

Argentina’s non-hydro renewables account currently for about 2% of total power supply, and the country relies on fossil fuel-based generation – mostly imported gas from Chile and Bolivia – for around 68% of its power.

“There are 8,000 companies that are qualified consumers [and can opt to buy power in the non-regulated market]. The industrial and commercial sector accounts for 25% of all demand, but I don’t expect them all to rush to regulated market, and not all will buy 100% of their power directly from renewables generators, it will take time,” Sebastián Kind, the sub-secretary for renewable energy at the ministry told Recharge.

Although as expected the non-regulated market rules are pretty liberal, there are limitations, such as having to communicate the decision to leave the grid and not return to buying from Cammesa’s market before five years. But even then, the market is attractive.

“It’s an opportunity for companies to seek cheaper power and to become knowledgeable about the renewable power industry,” said Cecilia Giralt, renewable energy economic and technical studies director at the energy ministry.

According to Giralt, new business models will arise, like the expansion of existing regulated market facilities. “Generators will have to be creative to attract the large users,” she concluded.

For Juan Pablo Saltre, CEO of Uruguayan renewable energy consultancy and construction company Ventus, which operates in Argentina, the prices at the regulated market could be as much as 15% cheaper.

“If you want prices below $60, it has to be in the non-regulated market,” says Saltre, who is also in talks with large industries for the construction of self-supply projects.

For generators, the non-regulated market is also a way to avoid the risk of having to receive payments from Cammesa, said to delay paying out at times of financial stress.

Saesa’s Bosch, however, estimates prices in the non-regulated market to be higher, at just over $70/MWh, but similar to renewable energy prices in the regulated market if you add surcharges and trading costs.

Argentina is taking giant leap into renewables with RenovAr revolution

But still he sees prices for renewable energy below prices that companies currently pay for power, which range from $80/MWh to over $110/MWh.

“We are holding very productive talks and in two years we’ll have 80MW for this market,” says Bosch.

Although several technologies qualify for the non-regulated market, including small hydro, biomass and biogas, market players believe that solar and wind will take the bulk of the contracts. Solar should lead because of better grid connections, the technology’s faster build-out time and the greater diversity in location in the country’s northern Andean foothill regions, they forecast.

“It will be a close call, but in the end I expect solar to account for 30-40% for the non-regulated market projects and wind for the rest,” said Bosch.

However, with private PPAs under 10 years representing one of the challenges for this market – which should easily top 1GW the next three to four years according to Bosch – is financing. With Argentina facing a challenge to overcome the bad reputation from its sovereign default in the early 2000s, the options are limited.

That means doors are still shut for project financing. So companies have resorted to corporate financing, and even to multilateral institutions such as the World Bank, the Inter American Development Bank (IADB) and the Latin American Development Bank (CAF).